BIR Ruling [DA-484-03]

December 10, 2003 BIR RULING [DA-484-03] Sec. 24 (D) (1); 313-88; 036-2000 Mr. Crispino S. Avancena 1285 Rosario St., Gen. T. De Leon Valenzuela City S i r : This refers to your letter dated June 19, 2001 requesting for exemption from the payment of capital gains tax on the tax auction sale conducted by the Province of Bulacan. It is represented that on March 22, 2000, the Province of Bulacan, thru the Office of the Provincial Treasurer, conducted an auction sale of delinquent real properties to satisfy real estate tax obligations; that among the real properties sold were properties covered by TD No. 00020 (TCT No. 73302) located in Calawitan, San Ildefonso, Bulacan and TD No. 0308 located in Iba O'este, Calumpit, Bulacan; that you were the highest bidder of the above-mentioned properties for which you paid the amount of P300,000.00 and P400,000.00, respectively, as the total price for the sale of each property; that since the period to redeem the above-mentioned properties had already expired and Final Deeds of Sale were issued in your favor on April 4, 2001, you are now consolidating titles of the said properties under your name; and that on April 24, 2001, you filed "Documentary Stamp Tax Declarations/Returns" and paid the documentary stamp taxes of P4,500.00 and P6,000.00, respectively, computed on the basis of the total selling price or auction price of each property. In reply, please be informed that your request is answered in the negative. Under Section 24(D)(1) of the 1997 Tax Code, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro and other forms of conditional sales, by individuals including estates and trusts, shall be taxed at the rate of 6% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. This rule also applies to sales effected through public auction. (BIR Ruling No. 313-88 dated July 13, 1988) In other words, in the instant case, the sale of the above-mentioned properties of the delinquent taxpayers in your favor, effected through public bidding or public auction, and as a consequence of the enforcement by the Province of Bulacan of its tax lien for the unpaid real estate taxes against the said properties, is subject to the capital gains tax herein imposed. However, the basis for computing the capital gains tax on such sale transactions shall be the total selling price or the highest bid price pursuant to Section 3(2) of Revenue Regulations No. 4-99 since a public auction sale is similar to a mortgage foreclosure sale. (BIR Ruling No. 036-2000 dated September 11, 2000) The Province of Bulacan, as the statutory seller, representing the owners of the delinquent real properties, is liable to pay the capital gains tax due on such auction sale. However, it may get reimbursement or recovery of the capital gains tax payment from the said owners. Moreover, the Final Deeds of Sale issued in your favor are subject to the documentary stamp tax under Section 196 of the 1997 Tax Code, based on the consideration or value received or paid for the land i . e ., the bid price as stated on said Deeds pursuant to RMC No. 41-91 and Rev. Regs. No. 4-99. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. ScCDET Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group